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“Tequila Crisis” to “Mango Madness”

“Tequila Crisis” to “Mango Madness”. Stephen Leahy Doug Salmon Brad Taylor Jason Zeman. Presentation Roadmap. M&A Overview: 4 periods 1980’s through early 1990’s Early 1990’s – 1 st Half 1998 2 nd Half 1998 – 1999 2000 - Present Aggregate deal values by target country/industry

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“Tequila Crisis” to “Mango Madness”

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  1. “Tequila Crisis” to “Mango Madness” Stephen Leahy Doug Salmon Brad Taylor Jason Zeman

  2. Presentation Roadmap • M&A Overview: 4 periods • 1980’s through early 1990’s • Early 1990’s – 1st Half 1998 • 2nd Half 1998 – 1999 • 2000 - Present • Aggregate deal values by target country/industry • Telecom example • Country focus

  3. Latin America M&A Overview • 1980’s through 1994: Limited Deal flow - Debt Crisis / Hyperinflation / Political Instability • Late 1994 – 1st Half 1998: M&A Deals Exploded - Government Privatizations - Fiscal Stability Increased (Real Plan/Convertibility Plan/Mexican Reform Package) • 2nd Half 1998 – End of 1999: Deal flow Slowed - Internal Instability (Argentina) - Emerging Market Crises (Russia/Brazilian Devaluation) - Controversial Elections (Argentina/Chile/Mexico) - Legislative Transformation (Venezuela) - Privatizations: 1998-$39.6bn; 1999-$8.1bn

  4. Latin America Announced M&A Deal Value CY1995 to CY1999

  5. Latin America M&A Volume Growth CY1995 to CY1999

  6. M&A Overview (Con’t) • 2000 – Present: Buying Spree • Record Pace in 1st Half 2000 • $ 56 Billion in announced deals (33% increase y/y) • Telecommunications and Banking Sectors Lead • Spain’s Telefonica announced $ 23 billion in 5 deals • Mexico’s banks are being bought by Spanish and US companies

  7. Latin America Announced M&A by Target Nation

  8. Latin America Industry Rank Values in 1H00 ($mils)

  9. Telecom Investment in L.A. • Source of Capital, Technology, and Jobs • FMN obtain access to large mkts, low cost labor, and tariff circumvention

  10. Telecom Services: Level of Competition in Americas

  11. Mexico M&A Environment • 1988 Salina Liberal Administration • 1993 Foreign Investment Law • 1994 NAFTA • 1994 FIL Amendments • 1998 Bank Ownership Restrictions Lifted • 1H to 2H 90s - 27B to 54B FDI • US FDI Increase to 12.5B for 2000

  12. Mexico - M&A and the Bolsa

  13. Mexico - M&A and Brady Bond Rates

  14. Mexico - M&A and Foreign Exchange Rate

  15. Sustainable Economic Growth Job Creation Competitive in Product Sectors FDI Friendly 1998-2000 - GDP 3.5 to 5% 1999 - Lowest Open Unemployment since 1985 2H90 Strong Increase Mexico Guiding Principles

  16. Argentine M&A Environment: The Past • Austral Plan in 1985 • Convertibility Plan in 1991 - Austerity program under Menem - Pegged currency - 51 firms privatized 1990 – 1992 for $14bn - Inflation decreased from 3,000%+ to .01% in 1996 • Q397: Merval exceeded 800 • July 1998: Recession has gripped Argentina • 11/00: Merval sank to under 400

  17. Argentina - M&A and the Merval

  18. Argentina - M&A and Brady Bond Rates

  19. Argentina - M&A and Foreign Exchange Rate

  20. Argentine M&A Environment: The Present & Future • Sovereign bond spreads hit +867 bps in Q400 • 12/00: Announced “el bindaje” with $14bn from IMF • Privatization of remaining 21 public firms • Fiscal austerity required to meet -$4.7bn fiscal target • Merval up 28% in 1/01, but plunged in 2/01 • Industrial production 4.2% in 1/01 • Consumer spending 1.8%. Confidence = 20.7 • Largely dependent on US/Europe/Japan

  21. Brazilian M&A Environment: The Past • July 1994 – Finance Minister Cardoso launches the Real Plan • Goals: slow inflation, reduce fiscal deficits, open economy, privatize • Pegged to USD, inflation adjusted wages, tight policies • Problems: FX rate valuation & Fiscal Deficit • Crawling peg became overvalued by 1998 • Congress would not pass fiscal reforms (Soc. Security) • By Jan ’99, int. rates shot up to attract foreign capital, couldn’t hold up. Devaluation Jan 15, 1999.

  22. Brazil - M&A and the Bovespa

  23. Brazil - M&A and Brady Bond Rates

  24. Brazil - M&A and Foreign Exchange Rate

  25. Brazilian M&A Environment:Present and Future • Brazil recovered from January 1999 devaluation rapidly • Cardoso remains President until 2002 elections • Recently split Congress is bonding with Cardoso • Attempting to pass fiscal reforms to meet IMF requirements • BRL is still inexpensive. Foreign companies looking to purchase Brazilian assets • Brazil’s exporters & growth industries are attractive • Pulp & paper, Telecommunications, Banking • Privatizations

  26. Conclusion • Macroeconomic factors had mixed correlation results • Emerging markets are viewed as one entity • Merger & Acquisitions in LatAm will increase in Telecom, Banking, and Utilities over the Long-Term • Rosy outlook predicated on robust US economy

  27. Q & A

  28. Telecom Future Investment Local representation is essential Options: Local Office Partnering Use of agents or distributors

  29. Latin America Announced M&A by Target Nation CY1995 to CY1999

  30. Top-10 Advisors

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